Monday, March 19, 2007

Quality of Life is more than Material Wellbeing: GDP as an Incomplete Measure of Singapore's Development

The Government likes to tout how Singapore's GDP (Gross Domestic Product) has rapidly grown, it frequently brandishes this metric in order to sell Singapore's economic success to the masses and to convince the public that the country is doing well - and thus buy votes.

But is GDP necessarily a foolproof metric for the country's progress?

Common criticisms of GDP as a measure are that it only measures change in material well-being, and ignores a variety of other, possibly more important factors that affect living standards. You can find these in any Macroeconomics textbook:

It takes no account of the distribution of income (i.e. whether the rich or the poor are the ones benefiting) (#1)

It takes no account of the composition of output (doesn't tell us the breakdown of goods and services produced, for all u know GDP grew because we produced more tanks)

Ignores negative externalities (e.g. doesn't tell us if there has been more pollution as a result of increased production)

Ignores the allocation of time between working hours and leisure hours (i.e. ignores work-life balance) (#2)

Ignores "quality of life" issues, which may result with excessive concern with material well-being at the expense of social, moral and religious values. (#2)

(#1)We've heard much about the widening income gap in Singapore - focusing purely on GDP fails to acknowledge how the benefits from economic growth are concentrated in the upper income group, while the lower income group sees a fall in its income and the middle income group experiences wage stagnation.

(#2)Focusing on GDP also ignores the fact that Singaporeans spend many hours in the office, working their butts off in the evenings and on weekend, to achieve this economic growth. And time spent at the office must necessarily come at the expense of family, friends, hobbies, and other activities that make life fun.

(#3)And, of course, we need not be reminded of how divorce rates in Singapore are on the rise and how suicides are hitting the headlines. The Government's focus on GDP ignores all these ills of society.

Because of these deficiencies related to GDP, other measures have been developed to gauge a nation's welfare, and perhaps the best known of these alternatives is the United Nations' Human Development Index (HDI)

The HDI brings together three different aspects of living standards. It's not perfect, but it provides a better picture than does GDP alone. The HDI includes

Real GDP growth as a measure of material well-being

Average life expectancy as a reflection of quality of health care.

Adult literacy rates as a reflection of educational standards and attainment. This measure relates to the political situation of the nation - democratic values and freedom are more likely to be achieved in an educated society, as is social tolerance and harmony.

If we look at Singapore's position on the UN global HDI list, we see it is ranked quite highly, at number 25.

However, on deeper scrutiny, we see that this high ranking on the HDI is highly skewed towards Singapore's GDP (#21) and life expectancy (#17), whereas Singapore is comparatively far behind in Adult literacy rates (#46), even behind countries like Thailand and the Philippines, and its also behind in combined primary, secondary, and tertiary enrolment ratio (#35), behind the Russian Federation and Hungary.

As long as the literacy rates remain at such a level, Singapore will face challenges moving up the HDI ladder. It's difficult to see it going much further up in GDP and in life expectancy - hence the chief factor that Singapore needs to work on to improve the standard of living relates to non-material measures - things like higher adult literacy rates, which, as mentioned, is associated with democratic values and freedom.

Despite the more balanced perspective it provides, the HDI also ignores issues related to work-life balance. I shudder to think where Singapore ranks on a global scale with regards to this measure. If this measure was factored into the equation, I hazard that Singapore would rank much lower globally than #25. And then there's the rest of the unaccounted measures like the income distribution, and the rate of suicides... I wonder how these would impact Singapore's global ranking.

So, the next time you see a news article in the press that trumpets how GDP has grown at a rapid pace (read:economy is doing well), pause to think about the deficiencies in the measure! Just because the economy is doing well, doesn't mean the quality of your life is improving. Life is about more than material wealth, and Singapore's progress should be measured by more than GDP!